Kurdish officials have refused to comment on the report and Israel has denied it knows of any involvement.

The revelation is set to cause enormous problems for the Kurds, not only in Iraq but also in the wider region.

Israel is seen as an enemy of Arabs and Muslims, both inside Iraq and elsewhere in Arab and Muslim countries.

'Against Israeli law'

Kurdish politicians will most likely come under pressure to explain what their semi-autonomous government has been up to.

Israeli security experts who spoke to the BBC said they could not have worked inside Kurdistan without the knowledge of the Kurdish authorities.

The news will most probably increase tension between the Kurds and Iraq's Arab population, both Sunnis and Shias, reinforcing fears that the Kurds are pursuing a secessionist agenda.

This would be a serious blow to efforts for national reconciliation at a time when hundreds of Iraqis are killed every month in inter-communal violence.

Iraq's neighbours, too, will be outraged.

Iran and Syria, which have long accused the Kurds of allowing the Israelis to operate on Iraqi territory, will most likely demand an explanation from the government in Baghdad.

The Israeli government says it is conducting an investigation into the BBC report because it is against Israeli law to export military know-how without prior permission.

'Conspiracy evidence'

The BBC report will be like the smoking gun the Arab media has spent years looking for.

Ever since the US-led invasion of Iraq began over three years ago, Arab journalists have been speaking of Israelis operating inside the autonomous region of Kurdistan.

They said this was evidence that toppling Saddam Hussein was only the first chapter in a wider American-Israeli conspiracy to eliminate threats to their strategic interests and re-draw the map of the Middle East.

Syria and Iran, which have common borders with Kurdish areas, are believed to be the primary target.